Gasping Cellulars

This scenario has changed the short-term regulatory goal. From trying to promote competition by letting in new entrants, the aim has changed to ensuring the survival of the new entrants. And those who accepted the opening up grudgingly are saying that those who cannot swim must be allowed to sink. But it is the regulators job to ensure that sufficient players survive so as to provide competition for the benefit of the consumer. To that purpose, it is argued, the government should allow the licence fee to be paid over a longer period, thus allowing the companies to spread out the licence fee outgo and offset it against higher revenues in later years.

All these in economist parlance are second-best options that lose sight of the optimum solution. The government always seeks to maximise revenue in the short run. However, its aim should be to give the country the cheapest possible telecom system in the shortest possible time to make the economy more competitive. Once that happens, revenue will come in on its own. Mandarins like to justify the licence fees as the price that companies are paying for a natural resource, in this case the wireless spectrum. But there is a very thin line between the real cost of the spectrum (which theoretically is the highest bid) and projects going unviable.

A revenue-sharing agreement can in the long run both maximise revenue and ensure the viability of players. The companies have proposed 15 per cent of revenues as licence fees, which the finance ministry does not like as it always looks to maximise current revenue to balance the budget. But revenue sharing versus time extension is not the real issue. While agreeing to any extension of the licensing period, the government must not lock the country for longer periods into static technology provided by the licencees. It should free technology restrictions on providers. Instead of mandating GSM a digital cellular standard, currently the exclusive technology for cellular services it should also allow emerging technologies like wideband CDMA and the like which deliver more sophisticated services at a lower cost. The government must also keep sight of the ultimate challenge removing licensing altogether so that a mature market can allow the latest and cheapest technology to win.